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Uncertain Switching Costs and Purchase Decisions in Electronic Markets

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  • Baichun Xiao
  • Youyi Feng
  • Edward Roche

Abstract

As advances in information technologies (IT) significantly reduce the time and cost of acquiring and processing product information, some buyers that traditionally work with one or few suppliers have switched to the market environment. The rapid growth of e-commerce has led researchers to believe that a uniform shift to the electronic markets is inevitable. This article examines the issue from the perspective of uncertain supplier’s performance, switching costs, and the value of information. We show that the presence of uncertainty and switching costs favors contractual relationships between buyers and suppliers. As IT makes the market more competitive, the marginal value of information diminishes. Meanwhile, the overall effect of IT on uncertainty and switching costs is fairly limited. As a result, buyers facing high uncertain supplier’s performance and switching costs may find working with a small number of suppliers a better choice. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Baichun Xiao & Youyi Feng & Edward Roche, 2005. "Uncertain Switching Costs and Purchase Decisions in Electronic Markets," Annals of Operations Research, Springer, vol. 135(1), pages 179-196, March.
    • Handle: RePEc:spr:annopr:v:135:y:2005:i:1:p:179-196:10.1007/s10479-005-6240-x
    DOI: 10.1007/s10479-005-6240-x
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    References listed on IDEAS

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    1. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring.
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    5. Thomas W. Malone, 1987. "Modeling Coordination in Organizations and Markets," Management Science, INFORMS, vol. 33(10), pages 1317-1332, October.
    6. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
    7. Beggs, Alan, 1989. "A Note on Switching Costs and Technology Choice," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 437-440, June.
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    Cited by:

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    2. Hui Yuan & Wei Xu & Qian Li & Raymond Lau, 2018. "Topic sentiment mining for sales performance prediction in e-commerce," Annals of Operations Research, Springer, vol. 270(1), pages 553-576, November.

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